Wednesday, December 30, 2009

Debt Can Make You Rich!

Debt, in this context, refers to something owed, such as money, goods or services. It's the condition of owing.

For many years, I've known debt to be a bad thing and I've tried as much as possible to be debt free (I'm debt free). This is in line with the preconception that getting out of debt is ideal. Every financial expert would advise a client to get out of debt because debt is bad. After some research, I have realised that debt can also be a good thing and it can make you rich. Today, there's good debt and bad debt.

I know some people would be quick to point out that they know the difference between good debt and bad debt. I used to think so too. Growing up, bad debt was a jargon. We considered bad debt to be debt which would never be paid back. In an event where money was loaned to someone who'd not pay back, we often qualified the debt as "bad debt." Good debt on the other hand was considered to be debt which could be paid back. Those days are gone and my understanding of good debt and bad debt have changed.

According to Robert Kiyosaki, the difference between good debt and bad debt is simple - good debt makes you rich while bad debt makes you poor. Good debt puts money into your pocket while bad debt takes money from your pocket. In fact, debt can make you rich! How? Hear from the investor and financial guru himself - in the video below:

Make sense? The problem is, many people get into debt for all the wrong reasons - to impress. They get into debt and buy liabilities (things that take money from their pockets) - things like cars, boats, a Rolex watch on a credit card, a vacation on a credit card, cell phones, computers, you name it. Smart people on the other hand use debt to get rich. They buy things that put money into their pockets. In other words, they use debt to invest.

The bottom line is, debt can make you rich. But in order to make it happen, you need to know the difference between good debt and bad debt. Most people say, "get out of debt." If you ask me, get out of BAD debt!

2 comments:

This is wonderful. Great piece as we make our new year resolutions. I own 2 properties - one is rental wc is good debt, I see. The other is our residential. Hmmm, real estate is really the way to go.Lema

I must say that it's a marvelous piece of article differentiating between good debts and bad debts.Certainly debt is a word which everyone wants to get rid off and a situation which anyone would want to avoid at all cost.After all debt or liabilities always give everyone sleepless nights till the time they are actually paid off.I certainly agree with your idea of having good debts as it shows us a better way to increase our wealth assets in terms of investment or savings and somewhere down the line they also teach us to keep a check on the bad debts by spending less and saving more.

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Born and raised in a middle class family with strong Christian values in Cameroon, Central Africa, I learned quickly that all natural persons are born free and equal in rights. I graduated from the University of Buea with a Bachelor of Laws (LL.B.) degree, and received a Master of Laws (LL.M.) degree in International Human Rights Law and International Labour Rights from Lund University, Sweden. My passion is in promoting human rights and the rule of law. I'm a married proud daddy of two.